Insurance penetration into the rural society is not just a laudable social objective but a soundly viable business proposition. There is no doubt that rural India is becoming a powerful engine of economic growth. Rural markets in India contribute to more than half of the sale of FMCG, clothes and durables, 100% of agri-product sales and nearly 40% of automobile sales. In the last few years, the biggest growth in the Indian mobile telephony market has come from the hinterland where 175 million connections have been sold.
But unlike the urban markets, exploring rural markets requires specific measures. Rural customers expect products to be fairly simple. Also, policies need to be flexible enough to allow customers to withdraw their money in an emergency with little or no penalty. Developing sales channels that are close to customers is critical.
Unfortunately, in India as in many parts of the world, insurers follow a “supply side” rather than “demand driven” approach to push micro insurance. Policies are customised for price points of the rural clients but not tailor made in terms of sales processes, risk management, distribution channels, customer care and communications to suit their specific requirements.
One of the problems of micro insurance is the mandated quota system. A quota system envisages an obligatory share of policies to be sold compulsorily in designated rural areas. For commercial enterprises driven by profit motive, presenting a viable business opportunity is a much powerful driver than dictating a specific quota for rural and social segments. Arguably, the impact of the quota is not very positive.
So the fundamental issue is the broader challenge of making financial inclusion an economically viable proposition. In a profitable scenario, insurers driven by economic reasons would on their own pursue market penetration strategies as it happened in the FMCG and telecom sectors.
Micro insurance customer
The concept of financial inclusion has no urban or rural bias. Again, poverty is universal and has no social or occupational skew. So if the objective of micro insurance is to reach out to the under privileged segments of the society where ever they reside and whatever they do, we must identify this by the sole criteria of affordability. However, affordability is a subjective criterion and is not easily ascertained by any of the prevailing methods used.
In a complex society like India where there are challenges of disparity, disclosures and data availability no single method may be appropriate to identify the true micro insurance customer. The best possible way is to approach the problem both from demand and supply sides. From the demand side, the segment may be identified by both income criteria (say less than Rs. 1 lakh annual income) and ticket size (say less than Rs. 1,000 monthly premium). From the supply side, a product that specifically addresses the identified needs of customers of the under privileged society may be classified as a micro insurance product.
Micro insurance needs
- Contrary to the limited purpose micro insurance products are sold currently in the market, the customer has multiple needs which he believes should be fulfilled by a single/hybrid product offering.
- Financial protection against loss of life
- Financial protection against critical illness
- Financial protection against sickness
- Social security in old age
- Financial protection against natural calamities
- Indemnity against asset loss (e.g., bullock cart, rickshaw etc)
- Financial protection against accidents
When we appreciate these different shades of the micro insurance need spectrum, we realise that a quota system of promoting micro insurance is fundamentally defective because it:
- Focuses on quantity than quality of insurance
- Does not take it into account the actual needs and let insurers merely offer thin insurance covers which provide very limited financial protection
- Makes no distinction between rural rich and rural poor
- Excludes the micro insurance needs of urban poor
- Makes the occupational classification and ignores the income classification
Any attempt to find an alternative product proposition involves finding answers to the top 10 questions the business is confronted with:
| Questions |
Possible way forward |
| Affordability? |
- Clear distinction must be made between the responsibility of a welfare state and the task of a commercial enterprise
- Protection of destitute population who cannot afford to pay premium for a commercially viable insurance scheme is the responsibility of the state
- Developing simple, affordable and custom made products is the task of the industry
|
| Irregular income? |
- “Flexi pay” and “Single pay” options for premium payment to coincide with the cash flows
- Regulated withdrawal options for emergency cash purposes to be provided
|
| Diverse needs? |
- A viable micro insurance product should cover insurable risks and the state should cover uninsurable risks through a public-private partnership where the benefits are combined, administration is single point but the costs are shared between the state and the industry
- A base product with rider options combining both life and non-life risks should be permitted to be offered by any one lead insurer of life, health or general category depending on convenience with back end coinsurance for the risks falling outside its business domain
|
| Low ticket—high access and servicing costs? |
- The answer to this is a combination of technology, liberalising the product design on group insurance platform and innovative separation of the critical tasks of (a) solicitation (b) advice (c) documentation and record keeping and (d) customer service into separate channels of delivery managed by specialised persons/agencies to achieve the scale of operations and required threshold of customer delight
|
| Product complexity? |
- Developing every product and service communication in simple to understand regional languages
- § Simplification of terms and conditions, proposal form, benefit illustration, policy document, service request forms
- On the lines of NPS, there should be one single, multi-purpose scheme that should be provided by all insurers at various price points of viability
|
| Identity–KYC norms? |
-
Wherever Aadhar is available as a unique identification, the same should suffice
-
In other cases, a combination of bio-metric and affidavit based identity should be allowed |
| Contactability? |
-
Insurance Benefit Card on the lines of Kisan Credit Card with embedded benefits which are downloaded into the card would mitigate the contactability challenge for paying withdrawal, surrender and maturity benefits. The Card should work as a surrogate policy document and should be permitted to be used as an ATM cum prepaid benefit card for universal access across any bank or post office
-
Contactability for premium collections should be addressed in two ways: (a) Regular subscriptions automatically deducted as add-ons through any utility providers (e.g.; mobile phone, cable TV etc.) and (b) ad hoc subscriptions through mobile phone enabled financial transactions. |
| Serviceability? |
-
24 hour, fulfillment oriented regional language universal help line should be set up with CTI (computer telephony interface) enablement as private-public participation. IRDA may set up this as it is a development initiative and the costs may be partially shared by every Insurer proportionate to its business volumes.
-
All service requests should be processed through this helpline
-
This helpline should also call up customers immediately on enrollment and check for product appropriateness—to prevent possible mis-selling by offering neutral advice |
| Communication challenge? |
-
A simplified and uniform scheme on the lines of NPS jointly promoted through public-private partnership
-
All communication touch points must be made simple, direct and in regional languages |
| Frauds? |
-
Mis-selling frauds should be reduced through mandatory verification by the universal helpline
-
Premium misappropriation frauds should be mitigated through pre-approved collection agencies which safe-keep safety deposits on daily basis to insure against any fly by operator walking away with the money of poor people
-
Benefit misappropriation frauds should be reduced through pre-paid benefit card issuance which is encashable across all banks and post offices |
Model micro insurance proposition
1. Change of product design
- Shift from individual life to group life
- Shift from regular pay to flexi pay
- Shift from single purpose plans to multipurpose plans
- Shift from life insurance to hybrid insurance covering life, health and general insurances
- Shift from locked in insurance covers to flexible unlocked insurance covers
- Shift from fixed income oriented plans to balanced funds
- Shift from product innovation to product standardisation
2. Change of sales process
- Shift from print based sales literature to audio/video based sales presentations
- Shift from a single sales person doing solicitation, advice, documentation, premium collection to customer service to multiple specialised delivery channels doing these different tasks on mass scale to achieve benefits of specialisation.
- Shift from field based dedicated insurance sales persons to embedding insurance sales and service as a part of additional activity of every small trader, service/utility person
One time identification of customer through Aadhar/biometric identification for universal financial inclusion
3. Change of servicing process
- Collection of premium through mobile phone network/other utility service providers
- Complete Policy Holders’ data in a Central Record Keeping agency on the lines of NPS data maintained by CRA
- All other service requests through a fulfillment oriented, CTI enabled regional language universal helpline
4. Change of regulatory requirements
The Indian landscape is such that insurers face various challenges from the geographical diversity and reach alone. This makes the delivery mechanisms for micro insurance constitute the single largest focal point in building a sustainable model. Hence, the need for regulatory reform:
- Farmers in a village or people like milk/vegetable vendors living in an urban slum should be allowed to be termed as a group for providing group insurance cover though they may or may not assemble together on a common platform
- Minimum number of members should be further reduced to cover even a family of four
- Permit a pre-approved standard Micro Insurance product on the lines of NPS developed on traditional, universal life or ULIPs with or without capital guarantee with features of partial withdrawals and ad hoc top ups
- Flexibility to choose sum assured as per needs subject to premium limits or income eligibility
- Any individual holding Aadhar Card should be exempt from providing any further ID proof requirements. People not having UID number may be identified through bio-metric processes. Alternatively insurers may be permitted as designated agencies to issue Aadhar numbers to uncovered population
- Subject to adequate safeguards, outsourcing of premium collection should be permitted for any utility company, retail vendors, shop keepers etc., to reduce the cost of collection
- Universal Helpline to be set up as private-public partnership and the Central Record Keeping Authority for customer data management should be allowed as outsourcing agencies to render appropriate customer service and claim settlement
Conclusion
Micro insurance cannot grow rapidly and sustain deeper persistency if it’s mandated on the lines of cross subsidy between rich and poor, urban and rural as any subsidies are not based on sound principles of economics. The real growth will happen if it is facilitated as a normal process of viable business by removing the identified obstacles and initiating the suggested reforms of the prevailing regulations.
The author is the MD & CEO of IndiaFirst Life Insurance
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